Budgeting for a babysitter or nanny shouldn’t be stressful. This handy resource will help you create a simple family budget to cover childcare expenses and babysitter pay so you can lead a well-balanced life without unnecessary worry over childcare costs. We’ll show you how to create a budget, discuss how much a babysitter costs, and help you factor in childcare tax deductions and nanny taxes.
Creating a Family Budget
Whether you use a sheet of paper or a fancy software or online program to create a family budget, the trick to building a budget you actually use and depend on is to keep it simple and to use actual amounts for income and expenses, rather than amounts you hope to earn or plan to spend. Family budget experts recommend starting by devising two sections – one for net income, which deducts taxes, healthcare and savings plans your employer subtracts from your paycheck, and one for expenses. The expense section should include all of your monthly expenses, including these common expenses:
- Mortgage or rent and insurance, as well as monthly association fees.
- Food, including groceries and dining out.
- Healthcare costs, including prescription drugs.
- Utilities, including gas, electric, phone/Internet, cable, water, sewer.
- Childcare, including day care, babysitters and nannies, and taxes.
- Travel and transportation, including car payments, gas, commuter expenses, auto insurance, and maintenance.
- Incidentals and household expenses.
- Personal (such as haircuts, etc.)
- Gifts and charitable contributions.
- Emergency and unplanned expenses.
Determining Childcare Costs
To calculate your childcare costs, you’ll first need to determine how often you will need a sitter. Do you need someone on a regular basis so you can work or attend a weekly or monthly appointment or just occasionally so you can run an errand or have a night out with your husband? It’s wise to take the time now to determine how often you’ll use a sitter on a monthly basis so that you can budget appropriately and limit end of the month surprises.
How much do you pay a babysitter? UrbanSitter surveyed over 400 parents and sitters across the U.S. to find out what babysitters are being paid. On average, parents in New York City are paying the highest rates, up to $15.50 per hour for one child. Those in the San Francisco Bay Area are paying $10.50 to $15.50 per hour. Parents in St. Louis are paying the lowest rate of anyone surveyed – $9.50 per hour. Almost all sitters expect a higher hourly rate for sitting more than one child at a time.
Ask other parents in your circles to get a sense of the going rate for a sitter in your area, and talk candidly with any prospective sitter so you know what she charges before you hire her. You may be able to negotiate depending on your needs. For instance, maybe you can share a sitter with a friend. The sitter babysits both families at one or the other’s home. While she’ll charge more than if she was just babysitting one family, the rate isn’t likely to double and you and your friend can split the cost.
Another way to lower your childcare costs might be to hire a mother’s helper, who is typically a pre-teen age girl or boy looking to get some babysitting experience and will likely work for a much lower rate. This is ideal if you only need someone to play with your kids while you make dinner or if you plan to do something else in the house while she is there.
Child and Dependent Care Tax Credits
One way to offset the cost of childcare is to take advantage of the child-care tax credit. In short, the credit for childcare expenses is a percentage of the amount you’ve paid in childcare for children under 13, as long as you are paying a childcare worker or babysitter to care for your children while you work or look for work. This means you cannot take advantage of the credit if you are hiring a sitter so you can take care of personal errands, run to the gym or simply enjoy some well-deserved time to yourself. You can count up to $3,000 in expenses for one qualifying child or up to $6,000 in expenses for two or more qualifying dependents. The amount of the tax credit is based on your adjusted gross income and can range from 20%-35% of your expenses. Remember, to be eligible for the childcare tax breaks, you must identify the care provider on your tax return, report the wages paid to the nanny and remit the necessary employment taxes, which leads us into the next section – the nanny tax.
The Internal Revenue Service requires you to pay employment tax if you are paying a domestic household employee – including a nanny or babysitter – more than $1,800 per year. There are several qualifiers and exceptions, so check the IRS page on the web to determine if you are required to pay the taxes. Federal Employment Taxes on domestic workers are paid annually as part of your Federal Income Tax Return. Generally, state taxes must be paid on a quarterly basis. Check your state’s requirements and schedule to learn more.
With a straight-forward budget in hand and an understanding of child-care tax credits and required nanny taxes, you are well on your way to covering your childcare needs with confidence and know-how. Think of all you can do with the newly found time away from the kids!